Power crisis: Gencos may not switch on idle units soon over fuel cost surge

Imported coal price at nearly $380 per tonne, while power price is capped at Rs 12 per unit, say players

Power generating companies (gencos) that use imported coal to produce electricity, may find it difficult to switch on their idle units immediately in the wake of high fuel costs, several players have told Business Standard.

Last week, the Union power ministry had invoked Section 11 of the Electricity Act mandating all imported coal-based plants to generate power at full capacity. However, some generating companies that use imported coal, argue that it is simply unviable for them to produce power when the price of coal in the international market is high, while the per-unit price of power has been capped at Rs 12 per unit on the domestic power exchange.

"Fuel costs have been surging, with imported coal price at nearly $380 per tonne currently. It is slowly inching towards the $400-per-tonne-mark, which means there is no respite from high fuel prices any time soon. At the same time, the price of power on the exchange has been capped at Rs 12 per unit. How fair is this," asked the chief executive officer (CEO) of a power company that has two plants running on imported coal. The executive requested anonymity in view of the sensitivity of the matter.

In an interview with Business Standard last week, Prashant Jain, joint managing director and CEO, JSW Energy had argued a similar point, saying that the per-unit power price on the exchange must be market-driven.

"For a vibrant sector, a few things will have to fall in place. Non-serious players must be weeded out. Demand and supply will have to dictate the price of power and stakeholders including generators, lenders and distributors will have to work together to ensure there is no national power crisis as we are now seeing," he said.

Of the total installed thermal capacity of 236.10 megawatts (Mw) in India, around 7.5 per cent (17,200 MW) is imported coal based, according to the Central Electricity Authority. Over 7,000 Mw of this capacity is shut owing to financial distress.

Power producers have been arguing for long that distributors must enter into long-term power purchase agreements with them and ensure timely payment of dues for their units to function smoothly. At the same time, some of them point to fuel linkages and debt restructuring to be undertaken on an urgent basis for non-operational units to get going.

K Raja Gopal, director, Reliance Power, says, “While the power ministry is keen to diffuse the current power crisis, generators have been grappling with multiple challenges for long. These issues will have to be resolved first, if power supply has to improve in the marketplace.”

For now, though, there seems to be no respite in sight. For instance, merchant power volumes on the exchange have fallen by 73 per cent to 60 million units a day now from 225 million units a day in March, said industry sources, after the Central Electricity Regulatory Commission (CERC) revised the power price (to Rs 12 per unit) on the exchange last month. Before that, the per-unit price of power had touched Rs 18-20, following desperate buying by state electricity distribution companies (discoms) to meet demand.

The intervention, coming after 13 years, had been done in consumer interest, the power ministry had said, to check runaway power prices in view of rising power demand.

Electricity demand hit a record 207.1 gigawatts (Gw) in April, with the power ministry estimating that it could touch 215-220 Gw in May-June owing to the peak summer period and a pick-up in industrial activity. At least 16 of India’s 29 states are struggling with blackouts, though the situation has eased in some places such as Maharashtra.